Why Do Broke Companies Still Give Out Bonuses?

12/4/2012 11:15AM

Financially ailing companies such as Hostess Brands often pay bonuses and other compensation to executives and private-equity owners before filing for bankruptcy protection. Mike Spector reports on Markets Hub.

This transcript has been automatically generated and may not be 100% accurate.

... I ... getting in ... the ... bankruptcy filing ... Mike Spector is here with this story ... a man who was very happy today not just of the of them a story on C1 housing a citizen and is aiming to spark shows that by the business segment coming up and how the markets are reacting to the results of ... a no no no there's no segment components of your story ... very well done story at the center ... of the top of some ... companies handing out bonuses to executives ... just ahead of bankruptcy ... yet so there is a lot that was passed our ... overall the bankruptcy code in two thousand and five ... that limits retention bonuses you can get executives of companies that are in bankruptcy regret ... and you know obviously this all comes from controversies with Enron and Paul Ryan pass through on one of the lining the pockets of executives to steer the ship in the ground etc ... but this law doesn't affect payments that are made ... before bankruptcy in what you see in what we discovered and certain cases not all cases the certain cases ... is that you have companies to pay bonuses to try to retain executives and you know months before filing for bankruptcy and specifically ... so they didn't have to deal with Apple on Grandma's recent example is Hostess went shopping with Hostess till without so Hostess ayam and this is sort of a controversial case and or disagreements I'm sort of what happened here but creditors filed this motion ... I was actually redacted and my enterprising colleague Rachel finds that ... is actually able to cut and pasted and didn't award and to spoil all of them ... we read about this all but early in the air and with the big story today ... back to the creditors alleged ... that there were the salary raises in July of twenty eleven this is roughly five months before us is file for bankruptcy ... and the creditors said hey you know you raise the salaries really privacy Yellen from seven hundred fifty thousand of ... the modified drilling and trying to stall he later resigned from the company ... and they're saying hey you now ... this looks like you're trying to get around this law that would make it harder for you to pay bonuses and bankruptcy is unstated just jacked up the salaries months for bankruptcy ... the unions won the listing of mad at ... you know Driscoll was done but the other executives had their salaries lowered to the dollar ... so you know the fire certain one and the creditors would rather complain but nonetheless you know we saw this example ... it's been really left a sour taste in the news now when the time came to give more concessions right now absolutely any new situation where ... was this goes into bankruptcy and says we need big big labor cuts on top before we did in a previous bankruptcy by seven years earlier or of this thing is going bye bye ... and unions are already resistance of that having done givebacks already ... been this comes out that poisons the while and yet we all saw the Twinkie incidents that took a wait has been an expiration date someone with a ... brand but the closing down the company has ... been going on strike does the argument is that well we need to pay him summon than a minute stage or keep the company going impact are second from ... up on the other side of that though I mean are these just you know this isn't a money grab ahead of the disaster shares he said a maniac man is would you want to stick around a company that's been spiraling into bankruptcy and ... all of the headaches that come with any new fewer CEO you're not just a running the company did a year dealing with everything that bankruptcy comes with a litigating creditors for all these court hearings all the rats testimony ... yet to deal with all that when you know you could probably go to another company I mean look primed to schools the CEO of Diamond Foods now it's no longer a sense of ... it in a way and makes an argument on the other hand ... Congress passed this law ... because they said you know we wanted to be really really hard ... to pay bonuses in cases like this is an issue of fairness is an issue of where the money is going to name a name and the bankruptcy estate that is strapped for cash the company by Mike Spector think you're a much ...